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Income Tax Appellate Tribunal, KOLKATA ‘B’ BENCH, KOLKATA
Before: SRI SANJAY GARG & DR. MANISH BORAD
order
: September 22nd, 2023 ORDER
Per Manish Borad, Accountant Member:
This appeal filed by the assessee pertaining to the Assessment Year (in short ‘AY’) 2011-12 is directed against the order passed u/s 250 of the Income Tax Act, 1961 (in short the ‘Act’) by ld. Commissioner of Income Tax (Appeals)- NFAC, Delhi [in short ld. ‘CIT(A)’] dated 08.06.2023 arising out of the assessment I.T.A. No.: 773/KOL/2023 Assessment Year: 2011-12 M/s. Shimmer Textiles Pvt. Ltd. order framed by the Assessing Officer (in short ld. ‘AO’) u/s 143(3)/254/251 of the Act.
The assessee is in appeal before this Tribunal raising the following grounds: “
1. For that the assessment order passed by the Ld. AO as confirmed by the Ld. CIT(A) is bad in law as well as on facts.
2. For that the Ld. AO erred in assessing Loan Rs. 26,13,757/- payable to Lahar Commodities Pvt. Ltd. as the name of the said company was struck off on MCA in spite of the fact that there was no waiver of loan by the assessee and that the name was not struck off during the year under consideration.
3. For that even otherwise, the Ld. AO erred in assessing the Loan u/s 41(1) of the Act in spite of the fact that the said loan was taken by the assessee for purchases of capital assets/repayment of loans taken in earlier years taken for the purposes of capital assets.
4. For that even otherwise, the loan written off is not assessable u/s 41(1) of the Act
5. For that under the facts and circumstances of the case, the addition made by the Ld. AO is liable to be deleted.
6. For that the appellant be given relief as prayed for.
7. For that the appellant craves leave to add, alter or withdraw any ground/s of appeal on or before hearing of the appeal.”
3. The facts in brief are that the assessee is private limited company engaged in the business of investment & house property and income of Rs. 31,11,681/- declared in the return for AY 2011- 12 furnished on 22.09.211. Assessment was completed u/s 143(3) of the Act on 26.03.2014 assessing income at Rs. 57,25,440/-. Thereafter the additions made in the assessment order were challenged by the assessee to the higher appellate forum and vide order dated 06.12.2017 this Tribunal restored the issue to the file of the AO for fresh adjudication. In compliance thereto the Page 2 of 6 I.T.A. No.: 773/KOL/2023 Assessment Year: 2011-12 M/s. Shimmer Textiles Pvt. Ltd. assessment has been framed and in the assessment order dated 18.12.2018 ld. AO has made an addition towards cessation of trading liability u/s 41(1) of the Act at Rs. 26,13,757/-.
4. The assessee challenged this addition before ld. CIT(A) but failed to succeed.
5. Aggrieved, the assessee is now in appeal before this Tribunal. Ld. Counsel for the assessee submitted that the impugned addition deserves to be deleted because the alleged sum is in the nature of unsecured loan and not a trading liability. Ld. Counsel for the assessee was fair enough to state that in the outstanding amount appearing in the balance sheet in the name of M/s. Lahar Commodities Pvt. Ltd. only a sum of Rs. 2,05,725/- is the amount of interest which the assessee has claimed as an expenditure in its profit and loss account and the addition may be sustained only to the extent of the interest expenditure claimed by the assessee.
On the other hand, ld. D/R vehemently argued supporting the orders of both the lower authorities.
We have heard rival contentions and perused the records placed before us and have also gone through the detailed paperbook filed by the assessee running into 112 pages and also the decisions referred and relied. We notice that the addition u/s 41(1) of the Act towards cessation of trading liability at Rs. 26,13,757/- is in challenge before us. We notice that the assessee took unsecured loan of Rs. 24.50 Lakh from M/s. Lahar Commodities Pvt. Ltd. during FY 2001-02. During FY 2001-02 the interest of Rs. 2,05,725/- was debited and on which TDS of Rs. 41,960/- was deducted and the net credit balance stood at Rs. Page 3 of 6 I.T.A. No.: 773/KOL/2023 Assessment Year: 2011-12 M/s. Shimmer Textiles Pvt. Ltd. 26,13,757/- and the same was being carried forward year to year. During the course of assessment proceedings for AY 2011-12, in compliance to the order of this Tribunal u/s 254 of the Act dated 06.12.2017 ld. AO noticed that the alleged sum of Rs. 26,13,757/- has remained unpaid from FY 2001-02 onwards till AY 2011-12. Ld. AO accordingly invoked the provisions of Section 41(1) of the Act and added the same to the income of the assessee. Section 41(1) of the Act reads as follows: “Where an allowance or deduction has been made in the assessment for any year in respect of loss, expenditure or trading liability incurred by the assessee (hereinafter referred to as the first-mentioned person) and subsequently during any previous year,— (a) the first-mentioned person has obtained, whether in cash or in any other manner whatsoever, any amount in respect of such loss or expenditure or some benefit in respect of such trading liability by way of remission or cessation thereof, the amount obtained by such person or the value of benefit accruing to him shall be deemed to be profits and gains of business or profession and accordingly chargeable to income-tax as the income of that previous year, whether the business or profession in respect of which the allowance or deduction has been made is in existence in that year or not; or (b) the successor in business has obtained, whether in cash or in any other manner whatsoever, any amount in respect of which loss or expenditure was incurred by the first-mentioned person or some benefit in respect of the trading liability referred to in clause (a) by way of remission or cessation thereof, the amount obtained by the successor in business or the value of benefit accruing to the successor in business shall be deemed to be profits and gains of the business or profession, and accordingly chargeable to income-tax as the income of that previous year.”
From perusal of the above Section, we notice that the same refers to a trading liability. For instance, the assessee purchases goods and the sundry creditor is appearing in the balance sheet and the same has remained unpaid for a long time and the I.T.A. No.: 773/KOL/2023 Assessment Year: 2011-12 M/s. Shimmer Textiles Pvt. Ltd. assessee fails to prove that such liability is existing/live then in such cases Section 41(1) of the Act can be invoked. So far as the case before us is concerned the alleged sum of Rs. 26,13,757/- is the balance of outstanding loan. The assessee took loan of Rs. 24.50 Lakh but the same has remained outstanding in the balance sheet only and it has never been claimed as a trading liability. Only the interest paid on such sum at Rs. 2,04,725/- has been claimed as an expenditure. Even the assessee has also claimed that the loan liability was live as on the closing date of the year under appeal and this company was struck off at a later stage.
Considering these facts and circumstances, we are of the considered view that only the interest expenditure of Rs. 2,05,725/- claimed by the assessee during FY 2001-02 needs to be added back to the income of the assessee but so far as the remaining amount is concerned it being not in the nature of trading liability, cannot be added in the hands of the assessee u/s 41(1) of the Act. Thus, the grounds raised
by the assessee are partly allowed.